If you’ve ever spent a blissful week on holiday somewhere warm and sunny, you may be tempted to buy a house or apartment in that location, with visions of family holiday memories, extra cash from rental income and a stake in the Australian dream of owning a holiday house.
While a holiday home can be a solid investment, experts advise doing some groundwork in deciding what your long-term financial goals are before you make any decisions.
We look at the pros and cons of buying a holiday home and offer some advice on how to choose a property that will provide solid returns on your investment.
Location is Everything
The more attractive your holiday home is to prospective holidaymakers, the more likely you are to secure regular tenants during busy holiday times, or a permanent tenant in the off-peak season.
Choose a location as close as possible to the chief attraction of the area, whether that is the beach, mountains or other tourist hotspots.
A property that is close to restaurants, shops, a shopping centre and the main street will always be more attractive than one that is not within reasonable walking distance of the main amenities.
It’s also worth thinking about staying within a reasonable distance of a large town or major city, in the event that holiday tenants need to go home quickly for work, medical care or other commitments.
Renting out a holiday home can help offset the costs of ownership but be realistic about how much revenue your property can generate. Many areas – costal towns in particular – are dead zones in the winter months and occupancy will be low. During peak season, prime properties (close to the beach and shops) can command premium rent, but demand drops off once the weather starts to cool.
If you are planning to stay in the property yourself in summer, you will be forgoing lucrative holiday rental income opportunities – make sure you can afford this as part of your long-term growth strategy.
If you plan to install a permanent tenant, you won’t be able to use the property yourself (unless you can fit in ‘between tenants.’ There is also the possibility of feeling obliged to stay in the property to get the most from your investment, rather than holidaying in different places – this obligation may take the gloss off your holiday home over time.
Keep in mind that more cleaning, upkeep and maintenance is required if you are turning over your short-stay tenants frequently during the summer season.
What Kind of Property Should I Buy?
Smaller apartments are good if you are buying in an area with an abundance of amenities and for those who are short -stay tenants.
A better investment may be a self-contained apartment with cooking and washing facilities or a house with plenty of space for guests, vehicle and pets (who like to go on holiday too!)
Buying a property with these facilities will make you more attractive in a competitive marketplace.
If you are outsourcing the management of your property, do your research on the total costs of these services.
A holiday home will most likely be considered an investment property unless you spend a considerable amount of time there yourself, so it’s important to be aware of the tax implications of this kind of ownership.
If you make a profit on the sale of your property, you will be required to pay capital gains tax.
If the property is not your principal place of residence, you are also liable for land tax, and you must declare any rental income to the tax office when you prepare your annual tax return
On the plus side, you may be eligible for tax benefits if your property is negatively geared.
If you’re thinking about investing in a holiday home, it’s a good idea to seek independent financial advice to see if this is a good long-term investment strategy.
It’s also vital to organise a building and pest inspection before you bid at auction or make an offer.
Found the perfect property? Book a pre purchase house inspection or combined building and pest inspection with The Home Inspection Hub before you attend an auction or make an offer. We are proud to partner with Crunch Pest Control for our pest inspections.
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